Energy

China lends Venezuela $20b, secures oil supply

(Agencies)
Updated: 2010-04-19 16:53

China will lend Venezuela $20 billion and form a venture to pump crude from an Orinoco Belt block, Venezuelan President Hugo Chavez said.

The financing from China is separate from a $12 billion bilateral investment fund, and will pay for Venezuelan development projects, Chavez said. Venezuela currently sends China 460,000 barrels a day of crude oil. The oil is used to repay China for $8 billion Venezuela used from the fund for infrastructure projects.

"We agreed on a huge, long-term financing plan," Chavez said on state television on April 17. "This is a larger scope, a super heavy fund. China, the world's second-biggest oil user, needs energy security and we're here to provide them with all the oil they need."

Spending by Chinese companies on mining and energy acquisitions reached a record $32 billion last year as fuel demand rises in the world's fastest-growing major economy. Venezuela, the largest oil producer in Latin America, is diversifying its export markets and seeking loans from Russia and Japan in a bid to boost output and finance social programs.

Chavez expects $120 billion of investment to flow into the Orinoco Belt in Eastern Venezuela in the next seven years to increase daily production by as much as 1 million barrels.

State oil company Petroleos de Venezuela SA and China National Petroleum Corp signed a joint-venture agreement in Caracas that will require a $20 billion investment to pump and refine heavy crude oil at the Junin 4 block of the Orinoco Belt.

China's imports

The exploration agreement signed on April 17 is valid for 25 years and China National Petroleum expects about 2.9 billion barrels in extra-heavy crude oil production from the accord, the Chinese State-owned company said in a statement posted on its website today. The financing accord is for 10 years, it said.

"An additional 400,000 barrels from Venezuela will increase China's imports by about 10 percent, sizable and important in terms of mitigating the reliance on Middle East which currently accounts for half of China imports," Gordon Kwan, the head of energy research at Mirae Asset Securities Ltd in Hong Kong, said in e-mailed comments today. China's imports totaled more than 4 million barrels a day.

PDVSA, as the Venezuelan company is known, will hold a 60 percent stake in the block that is expected to eventually produce 400,000 barrels a day, Oil Minister Rafael Ramirez said on April 16. China National Petroleum will have to pay the Venezuelan government as much as $1 billion to access the reserves, he said.

Non-conventional projects

A Chinese delegation led by Zhang Guobao, head of the Chinese National Energy Administration, attended the signing ceremony in Caracas after President Hu Jintao canceled a planned visit to Venezuela and Chile following an earthquake in China's Qinghai province. Hu is expected to reschedule his trip.

The two countries plan to build three electric plants powered by petroleum coke with a capacity of 300 megawatts each, Chavez said. Another thermoelectric plant will be built in Merida state to produce 500 megawatts, he said.

Venezuela is grappling with a severe electricity crisis following a drought that dried up reservoirs behind hydroelectric plants. The country plans to spend $6 billion this year to boost thermoelectric output.

Trade surges

Trade between the two countries surged to $8.9 billion in 2008 from $85.5 million in 1999, according to Venezuela's state bank, Bancoex.

Chavez said that the $20 billion loan is the largest that China Development Bank Corp has extended to a country, and will go toward funding housing, railroad, energy and agriculture projects. China built and launched Venezuela's first satellite into orbit in 2008.

China last year agreed to loan Brazil's state-controlled oil company, Petroleo Brasileiro SA, or Petrobras, as the company is known, $10 billion, and signed a long-term supply contract with the company.

"The relations between China and Venezuela extend from below the surface of the earth to outer space," Chavez said. "We're producing oil together and our satellite is out there in space. This is a mutating world in transition."